Are they predicting a V or a W?
Over the past six months we hare repeatedly reminded ourselves, as well as non-economists, that although recessions/depressions are usually V-shaped, sometimes they are W-shaped (double-dipped). Time has now come for high-profile economists to give us their predictions as to the shape of the one we are living through.
Yesterday Robert Reich did just that. In a short piece well-worth reading, The Great Disconnect Between Stocks and Jobs, he predicts a W. He writes:
“In the old-fashioned kind of recession decades ago, big companies laid off people with the expectation of rehiring them when the economy turned up. Then a few recessions back, companies started laying off people for good, never rehiring them even when the economy recovered.
In the Great Recession of 2008-2009, companies are going a step further. They’re using this sharp downturn to cut payrolls even below where they were when times were good. Outsourcing abroad, setting up shop in China and elsewhere, contracting out, replacing people with software and automated machines – they’re doing whatever it takes to get payrolls down so earnings bounce up. . . . “
“The result, overall, is an asset-based recovery, not a Main Street recovery. Yes, the economy is growing again, but the surge in productivity is a mirage. Worker output per hour is skyrocketing because companies are generating almost as much output with fewer workers and fewer hours. The Fed, meanwhile, has become an enabler to all this, making it as cheap as possible for companies to axe their employees. Money costs so little these days it’s easy to substitute capital for labor. It’s also easy to buy up foreign assets with cheap American money. And it’s now blissfully easy for Wall Street to borrow money almost free and buy all sorts of interests in foreign assets, especially commodities. That’s why we’re seeing the prices of foreign commodities and other assets go through the roof. . . .”
“No economy can recover without consumers. Yet American consumers, who constitute 70 percent of the U.S. economy, are facing mounting job losses as well as pay cuts. They’re in no mood to buy and won’t be for some time. Where is this heading? No place good. Without a major shift in policy — both at the Fed and in the White House — the economics point to a big stock-market correction and a double dip.”
A few days earlier Nouriel Roubini blogged The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses. But despite the pessimistic title, Roubini for the time being remains a single-dip economist. He predicts the official unemployment rate in the US will increase for at least another 13 months and says “The weakness in labor markets . . . increases the risk of a double dip recession.” Nonetheless he concludes that “we can expect weak recovery of consumption and economic growth”.
How do the other high-profile economists of our day – I am thinking of Dean, De Long, Galbraith, Keen, Krugman, Mankiw, and Thoma — line up on the big forecasting question of the year? Do they go for V, W or hedging their reputations? Do you know? And what about you? Care to make a case for V or W?